British Columbia’s wildfires have crystallized the threats pension plan administrators across that province face from catastrophic climate change events, says Damara Kiceniuk, senior risk analyst of pensions at the B.C. Financial Services Authority. However, these fires are just one catastrophic risk pension funds have to manage.

These risks have prompted the organization to release a discussion paper for consultation. ‘Natural Catastrophes and Climate-Related Risks: Managing Uncertainty and Building Resilience in the Financial Services Sector’ outlines how natural catastrophes and climate-related risks pose a material risk to the financial services sector and how they may impact each segment it regulates.

It discusses the complexity and uncertainty in identifying and measuring these risks, as well as the role of financial services providers in ensuring the information and advice required to make informed decisions is available.

Read: Transition to low carbon economy highlighting climate risks for pension plans: CAPSA

Since April 1, 1,523 wildfires have burned more than 1.54 million hectares of land in B.C. while other wildfires rage across the country. “Before, we were hearing a lot of conversation about the need to measure the ephemeral risks — the [environmental, social and governance] risks that were being contemplated. Now, when it’s right on one’s doorstep as their neighbour’s houses are burning down, it becomes real. It crystallizes the actual impact when the value of an asset can go to zero.”

In the past three years, B.C. has seen other climate-related extreme weather events. In November 2021, there was a massive flood in the southern part of the province when extreme rain swamped rivers and farmland and triggered mudslides that blocked major highways, forcing 20,000 people to abandon their homes. That same summer, a heat wave drove temperatures above 40°C, killing more than 600 people, including 231 on June 29 when nearly 10 people died every hour.

Read: More work to be done by pension plan sponsors on factoring climate into mortality, morbidity assumptions: CIA

However, since B.C. is in an earthquake zone, the BCFSA also included these natural disasters in the discussion paper. “While they’re not climate-related, they’re a natural catastrophe that could be on a much larger scale than any natural catastrophe Canada has ever seen,” says Kiceniuk. “We wanted to highlight to pension plan administrators and other regulated entities that this is something they also need to keep their eye on.”

The natural catastrophe guidance is a tool to encourage plan administrators to identify, measure and manage all of the material risks, including emerging risks.

As an integrated regulator, the BCFSA looks at how one sector affects the others and how guidance in one area can impact another. For example, says Kiceniuk, “we know that pension plans are increasingly investing in real estate — it’s not just the large plans, it’s even the mid-sized and smaller funds. So as we look into guidance on disclosure about flooding or earthquake risk a given property would be potentially facing, the property disclosure requirements we’re exploring could help real estate investors, including institutional investors like pension plans, identify the current and potential future risks in their investments.”

Read: How investors can understand and act on climate risk in real estate portfolios

The Canadian Association of Pension Supervisory Authorities is also developing risk management guidelines, which will be included in B.C.’s guidance for pension plan administrators. The BCFSA’s guidance “is going to be the CAPSA guidance as it wants to be aligned with its peer regulators across Canada,” says Kiceniuk.

However, she also acknowledges that the BCFSA needs to be flexible with its guidance on the approaches that pension plan sponsors and other investors take towards catastrophic climate risk. “We are not taking a prescriptive approach because the majority of pension plans are very small, although the majority of pension plan members are in the mega plans. The approach for a plan with $1 billion in assets is going to be different than the approach for a plan with $10 million, but we’re expecting that every pension plan [will] make this part of their overall risk management strategy — that they look at all the material risks out there.”

Fortunately, says Kiceniuk, when it comes to climate-related risks, more data is becoming available showing the risks to various asset classes. “We’re aware that there isn’t perfect data out there, but there’s a variety of groups building out the data and we’re looking at being part of that solution.”

Read: ACPM advises CAPSA against one-size-fits-all approach to ESG, cybersecurity risk management